Chart Of The Day: Why The Dow Jones Rally Won't Endure
Investing.com | Mar 03, 2020 14:01
While we predicted yesterday’s exuberant rally, we also said it won't last. We forecast the Fed will likely give in to rate cut demands, but will resist doing so, because it knows the action would be ineffective.
Nevertheless, Fed Fund futures are already pricing in a half-percent cut in March. On top of that, U.S. President Donald Trump had restarted his pressure on the Fed, encouraged by the Australian central bank's decision to cut interest rates by a quarter percent.
But why would a Fed rate cut be ineffective? First, it’s already expected. So, the Fed would have to really wow the market to reawaken its animal spirit — and it doesn’t have that much room in which to maneuver.
Secondly, and more to the point, the issue at hand is the coronavirus outbreak — and the world is no closer to managing it, never mind eradicating it. Growth is expected to be the worst since the financial crisis, as manufacturing lines and supply chains are thrown into turmoil.
Finally, we could see a return to a U.S.-Sino trade war, if China doesn’t honor its promises on the Phase One deal.
Also, from a technical standpoint, the fortunes of the Dow don't look good.
Get The App
On the one hand, the MACD and the RSI are extremely oversold, with the latter reaching the lowest level since August 2015, while the price hammered out a support at the 25,000 support, both from the May 31 low and the uptrend line since January 2009.
However, on the other hand, bulls have to climb back up a jagged mountain after the price cut through the uptrend line since its December 2018 flirtation with a bear market, “protected” by the 200 DMA.
Conservative traders would wait for a new record, then a downward correction to the uptrend line before risking investing in this market.
Moderate traders may risk a long position after signs of accumulation above the broken uptrend line.
Aggressive traders would short upon the first sign of resistance, or above a presumed resistance, with a stop-loss calculated to provide a positive risk-reward ratio that fits their budget.
Trade Sample - Short Position
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.